The trust was established by a deed dated February 17 1989 and was a standard discretionary trust with three principal beneficiaries. The principal beneficiaries were brothers. Trustcorp had been the trustee of the trust from settlement, albeit under a different name.
A dispute arose between the three brothers. As a result, and due to proposed tax changes and difficulties in obtaining information regarding the underlying assets, the trustee decided to distribute the assets equally between the brothers, taking into account previous distributions.
Unable to propose an agreed solution, on February 13 2009 the trustee brought an application to the Royal Court seeking approval for the proposed distributions. The distributions were made, save to one brother (the claimant brother); his share remained in the trust. The class of beneficiaries was amended and restricted to the claimant's family and he was appointed protector.
On February 5 2010 Volaw was appointed as the new trustee. The claimant notified Volaw that he did not feel that the court had been given the full information at the hearing, which resulted in a lack of equality in the distributions between the brothers. He therefore requested that Volaw consider bringing an action for breach of trust against Trustcorp.
At the time of the trust's creation, the main asset was a Liberian company called Chalais Holdings Limited, which in turn owned a company called Elkay Finance Limited. Outside the family trust structure was a further holding company, which owned a hotel in Canada.
The hotel company borrowed money from BCCI Canada and from Chalais; both loans were secured against the hotel. Chalais also had a deposit with BCCI. In 1993 BCCI went into liquidation and the terms of the loans and deposit were renegotiated.
A separate entity, Kansu Corporation Limited, was established to buy the mortgage owed by the hotel company from BCCI on preferable terms as the designee of Elkay Finance. The precise ownership of Kansu was unclear. However, because Kansu was not owned by the trust, the amount of the mortgage and the interest paid thereon by an additional subsidiary of Elkay Finance was not shown as an asset of any of the companies within the trust structure. Moreover, a letter from Credit Suisse obtained after the hearing showed that the moneys used by Kansu to purchase the mortgage from BCCI were in fact provided by Chalais.
The claimant therefore alleged that there may have been a breach of trust by Trustcorp, as these facts were not disclosed at the hearing and as such a fair and equitable distribution was not made. Trustcorp in turn argued that the claimant was aware of the facts and, in any event, it was the fault of the brothers that Trustcorp did not have the full facts. Trustcorp had been attempting to establish the precise financial position of the various subsidiary companies for some time and the brothers had not been forthcoming with the required information.
In its judgment(1) the Royal Court pointed out that its role was only to explain why the order regarding the disclosure of information had been made, rather than to comment on the claimant's allegations.
The court reiterated the position regarding the nature of an outgoing trustee's responsibility to provide documents and information to an incoming trustee. With reference to The Equity Trust (Bahamas) Limited v Basel Trust Corporation (Channel Islands) Limited,(2) it explained that an outgoing trustee will normally be under a duty to hand over to an incoming trustee all documents and information that relate to the administration of the trust, so as to enable the incoming trustee to fulfil its duties. However, the court has the discretion to direct that documents or information not be supplied where it is satisfied, in its supervisory role, that this is the appropriate course. The onus lies on the outgoing trustee to show why the normal rule should not be followed.
Volaw sought all documents in the possession of Trustcorp relating to the trust structure and underlying entities, together with all correspondence, legal advice and file notes.
A letter from Mourant Ozannes dated May 29 2012 had set out the family concerns and certain considerations arguing against the disclosure, as follows:
- It was not in the interests of any family members to reopen the matter at this late stage; the result would only be expensive and bitter litigation.
- The family companies were no longer assets of the trust and it would be wrong to order disclosure of the affairs of a company that was no longer a trust asset.
- The circumstances surrounding the alleged Kansu loan were placed before the court at the hearing to the extent that they were known by Trustcorp. The court was made aware of the lack of information and documentation.
The court dismissed the first concern as a reason not to permit disclosure. The lack of information may have resulted in an inequality in distribution and the risk of further dispute was insufficient reason to refuse an order for disclosure.
On the second concern, the court noted that while the companies were now held by the family, this did not remove the obligation of Trustcorp to account for its trusteeship and therefore to provide information on the companies during the period that they were owned by the trust. Trustcorp was under an obligation to keep such records. The order was therefore confined to the period during which the companies were trust assets.
With regard to the third concern, the court agreed that if it turned out that the claimant was aware of the position regarding Kansu before the decision at the hearing in 2009, this could affect the validity of his claim. However, it was not the court's role at this stage to pre-judge that position.
The court noted that if a possible breach had come to the attention of Volaw as the new trustee, it should be investigated. The claimant brother was a beneficiary and protector of the trust and had brought to Volaw's attention reasonable grounds to believe that full disclosure was not made at the hearing. It was therefore reasonable that Volaw should seek the necessary information to establish whether the claims were ill founded.
Although the order for disclosure was made, significant restrictions were imposed, as follows:
- Volaw was required to enter into a non-disclosure agreement in favour of Trustcorp for the purposes of maintaining client privacy with respect to misfiled documents and unconnected third parties.
- Volaw was ordered to enter into a written undertaking to obtain the consent of the Royal Court or Trustcorp before disclosing directly or indirectly to the claimant or any other current, former or future beneficiary of the trust any confidential material and exhibits relating to proceedings instituted in 2008 by Trustcorp.
Furthermore, the court noted that if information comes to the attention of a new trustee that a former trustee has committed a possible breach of trust, it should be investigated.